Gold was lower this week on the London Bullion Market, where one ounce closed at $1,285.85 on Wednesday, down nearly 2% from March 1. On the Comex, one ounce traded through gold futures closed at $1,287.8, down 1% over the same period.
Compared to 2018, however, the yellow metal is still trading higher. Year to date, the cumulative average price of the bullion is $1,304.06 per troy ounce versus a cumulative average price of $1,268.49 per troy ounce in 2018. So far this year, the average price of gold futures is $1,307.51 per troy ounce versus an average price of $1,289.27 per troy ounce last year.
Current economic and political factors suggest gold will continue to uptrend in 2019.
In addition to the U.S. Federal Reserve’s potential interest rates hikes in 2019 and the trade agreement between the U.S. and China, which is expected to finalize by the end of March, expectations for a low U.S. dollar is a catalyst for gold prices.
The U.S. trade deficit for 2018, which reached a 10-year high of $621 billion, suggests the implementation of a new policy based on a weak dollar that will promote exports and discourage imports.
Given the inverse relationship between the two variables, a low currency will cause gold prices to rise.
Investors can take advantage of rising commodity prices through publicly traded producers. Among the gold miners that are strongly positioned to benefit from the gold bull market is Kirkland Lake Gold Ltd. (KL, Financial). The stock tends outperfrom the VanEck Vectors Gold Miners (GDX, Financial) exchange-traded fund when the metal is rallying. The ETF is used as a benchmark for the industry.
Over the past six months through March 6, when gold gained 8% on the London Bullion Market, Kirkland Lake Gold soared 84%, beating the ETF by nearly 70%.
Analysts issued recommendation ratings ranging from hold to sector-market perform, meaning investors are encouraged to maintain their positions in the stock since it is expected to perform in line with the sector or the market.
Based in Toronto, the miner, which operates in Canada and Australia, will profit from the rising gold price with production that may hit one million ounces this year. The company boosted its 2019 guidance by 25% to 920,000 to 1,000,000 ounces.
Kirkland Lake has also improved 2019 consolidated unit-cost guidance, lowering operating cash costs to between $300 and $320 an ounce from $360 to $380 per ounce and reducing the all-in sustaining costs to between $520 and $560 per ounce from the previous guidance of $630 to $680 per ounce.
Access to high-grade zone stopes and a higher grade of ore at the Fosterville Mine in Australia will drive production growth and cost reductions. The resumption of operations at the Holloway mine in Ontario will also contribute to the operating improvement.
Thus, the gold margin will enhance Kirkland's earnings before interest, taxes, depreciation and amortization margin further from the current 58.4%, topping the industry median of 24.5%.
The margin is an indicator of the company's profitability.
GuruFocus gave the company a profitability and growth rating of 8 out of 10. Its financial strength scored a solid 9 out of 10 rating.
The company has $1 billion cash target to reach by 2021, but if operations continue to advance well, that milestone can be achieved earlier, commodity permitting.
Besides the Fosterville Mine in Victoria, Kirkland Lake owns and operates three underground gold deposits in Canada: the Macassa Mine, the Holt Mine and the Taylor Mine.
The company has consolidated mineral reserves totaling 5.75 million ounces of gold, grading 15.8 grams per ton of ore as of Dec. 31.
The closing share price was $34.36 on Wednesday for a market capitalization of $7.24 billion. The stock climbed 120% over the past year through March 6 and is trading above the 200, 100 and 50-day simple moving average lines.
Wednesday's closing price was 136.3% above the 52-week low of $14.56 and 6.8% below the 52-week high of $36.74.
The price-book ratio is 5.73 versus an industry median of 1.62 and the EV-to-EBITDA ratio is 13.02 versus an industry median of 8.71.
The stock is not cheap; therefore, I would suggest investors hold their positions and buy more shares on any significant weakness.
The 14-day relative strength index is 56.10, suggesting the stock is neither oversold nor overbought.
Disclosure: I have no positions in any securities mentioned.
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